Keywords: Mazars, Thailand, Accounting, IFRS, Financial Instruments, IAS 39, IFRS 9, IFRS 4, IASB
14 October 2014
In addition to the provisions drawn from IAS 39 (scope, derecognition) and the section on hedge accounting that was finalised in November 2013, the new IFRS 9 now also contains the final provisions on:
- the classification and measurement of financial instruments;
- and the impairment of financial instruments exposed to third party credit risk.
IFRS 9 introduces significant changes in comparison with IAS 39.
- The provisions for the classification and measurement of financial assets will in future depend on a combined analysis of the business model for each asset portfolio and the contractual characteristics of the financial assets. Reclassifications between amortised cost and fair value categories are probable.
- The impairment model moves away from the current approach based on incurred losses in favour of an expected loss approach. This change will have profound impacts, both in terms of the impairments to be recognised in the financial statements (a significant increase is anticipated) and in terms of changes in information systems.
- Finally, it should be remembered that the hedge accounting chapter which we presented in our January 2014 edition contains many significant improvements to align the accounting treatment more closely with an entity’s risk management.
For entities whose reporting period coincides with the calendar year, the IASB expects an effective date of 1 January 2018. Early application will be permitted. Industrial and commercial entities will be interested in the possibility of applying the new hedge accounting provisions as early as possible, the financial sector (banks, insurance entities etc.) will probably be in less of a hurry, given the scale of the work that this new standard represents for the sector which must gear up without delay.
In parallel the IASB is continuing its work on IFRS 4 Insurance contracts, and on the future standard on dynamic risk management (macro-hedging) which will be two natural companions to IFRS 9 for financial institutions.
Finally, readers will recall that IFRS 9 will not lead to convergence between IFRS and American standards in the matter of financial instruments. At the beginning of 2014, the US standard setter withdrew definitively from this project - which was initially a joint undertaking - in order to develop its own model for the classification and impairment of financial assets.